Volkswagen: The Farce Of The 'Golden Goodbye'

A "farce" is defined by the Oxford English dictionary as "a comic dramatic work or genre using buffoonery and horseplay and typically including ludicrously improbable situations."

The latest revelations that Volkswagen has seen fit to give Martin Winterkorn, its CEO who resigned over the diesel emissions scandal €16.6 million ($18.9 million) before tax and a "golden goodbye" worth €9.3 million ($10.6 millon) surely places this unfolding corporate story well into the realms of corporate farce.

So-called "performance-related bonuses" for 2015 for the company's 12 board members -- both current and former -- are €35 million ($39.8 million), taking their total pay to €63 million ($72 million). It's a lot of money, while it is open to speculation as to what the legal costs of the scandal will eventually be. The company set aside a mere €16.2 billion ($18.4 billion) in 2015 to cover the costs of the emissions affair. It faces a civil suit by the U.S. Department of Justice for at least $45 billion in penalties.

To make matters worse, Mr. Winterkorn has managed to avoid the "claw-backs" on pay that were applied to other senior managers following the diesel emissions scandal. Corporate governance literature talks about the need to "tone from the top." In the case of Volkswagen, the tone seems very clear -- as covered here earlier on Forbes.

In the midst of all this, Volkswagen has spent a lot of marketing time and budget apologizing to its customers -- and even managed a two-minute apology direct to U.S. President Barack Obama.

Looking at it more broadly, the world's largest car makers have now recalled more than half a million vehicles -- General Motors, Daimler and Volkswagen between them have voluntarily recalled 630,000 diesel cars across Europe for "irregularities" that have meant their vehicles emit far more poisonous nitrogen oxide than legal limits. There are also new investigations into both Mitsubishi and Daimler.

What sort of a message does the VW payout send to other top management teams at car manufacturers? The message to a consumer public is surely that it simply holds them in contempt.

Among other findings, the research suggests that the exclusion of firms with controversial ESG behavior from the investment universe helped improve performance in the research period.

Going back to pay at VW, Dr. Hans-Christoph Hirt, co-head of Hermes EOS, which is a shareholder, has said the company’s supervisory board should have withheld all bonus payments to senior managers until an investigation had determined who was responsible for the scandal. Without accountability, corporate governance is a sham.

“In the light of the emissions scandal and Volkswagen’s 2015 results, management board members should have voluntarily forgone their bonuses — until all investigations are completed,” he told the Financial Times. Hermes EOS, along with other institutional investors, has repeatedly made clear its stance in voting against remuneration proposals at a number of companies, as anger on high pay for poor performance again hits the British media headlines.

Volkswagen's behavior is unlikely to do anything to restore trust in the global car industry.